Redefine ditches 'rats and mice'

Johannesburg - Property analysts have welcomed newly merged Redefine Properties' intention to sell off about R3.6bn worth of smaller, older properties.

Redefine management announced this week that the company will offload about 160 of its "non-core" properties over the next three years. That represents about 40% of its total portfolio of 403 office, retail and industrial buildings valued at R18.2bn.

"Getting rid of the rats and mice will enable us to improve the quality of the portfolio and re-invest the proceeds in newer, bigger buildings," Redefine joint CEO Marc Wainer told Fin24.

Wainer said although the buildings earmarked for disposal represent 40% of Redefine's total portfolio in number terms, they only represent 20% of the fund's value. "Many of these buildings are worth only R5m or R6m, and no longer have a place in such a large, diversified portfolio."

The idea is not only to reduce the number of properties in the portfolio, but also to increase average values. Wainer said Redefine hopes to raise the average value of individual properties from about R40m to R100m over the next three years.

Redefine's intention to streamline the portfolio inherited from the much talked-about merger with ApexHi Properties in June 2009 appears to be somewhat of a strategy shift away from size to quality.

The size offered by ApexHi's massive portfolio was originally a key driver of the merger, as it helped propel Redefine into the same league as sector heavyweight Growthpoint Properties. The latter's market cap is R21bn.

Analysts are in favour of Redefine's intention to dispose of lower quality properties, no doubt on the back of the disappointing set of results released two weeks ago, which saw growth in income payouts (distributions) dip by 0.2% for the year to August 2009. The sense was that the newly merged portfolio might have proved too big and cumbersome to manage optimally.

Evan Jankelowitz, co-head of Stanlib Property Franchise, said building a better quality portfolio and income stream is a positive, as size alone is not everything. "We look for size and quality." However, how successful management would be in implementing their disposal strategy is another matter, said Jankelowitz.

Anton de Goede, property analyst of Coronation Fund Managers, had a similar view. He said there is no doubt that the higher the average building value in a portfolio, the more focus management can bring to the asset management of that portfolio. "The goal to decrease the number of its buildings is therefore promising, but achieving this goal could be challenging."

- Fin24.com